Group buying online shopping trend hits the Middle East
- 20 September 2011
- From the section Business
The sun is barely up over Dubai's Jumeirah beach, but already a group of about 30 fitness fanatics are sweating furiously as they grimace through another set of squat thrusts.
In sand-covered royal blue vests, they are here to get fit and enjoy fresh air before the Gulf's late summer humidity kicks in for the day.
But some have also been lured to this exercise boot camp by an online marketing trend that is only just gathering momentum in the Middle East.
Group buying - sometimes called social buying - has become a multi-billion-dollar business from the US and Europe, to Australia and China.
It has made companies like Groupon household names through their daily emails offering hefty discounts on everything from meals to mobile phones, hotel rooms to horse riding, and beauty spas to brand new cars.
While each firm operates in slightly different ways - they essentially deliver customers to retailers in return for a cut of the total revenue.
But despite retail making up a substantial chunk of the Middle East economy - and credit card usage being widespread - it has taken longer to establish the trend in the region because e-commerce is still in its infancy.
"The history of online buying in this part of the world can be measured in days and weeks, not years," says Dan Stuart, chief executive of GoNabit, which was the first firm to open in this region.
"When we started, people could buy flowers, gift baskets and flights through the internet, but not much else. They had to buy from sites based outside the region but we've seen a big shift in that."
Such is the apparent potential that Groupon opened offices in Dubai this year, while Mr Stuart's GoNabit is preparing to rebrand after being bought out by another US firm, Living Social.
UAE-owned Cobone.com launched a year ago, and to meet local needs and reticence about internet shopping, about 80% of sales in the first few months were done through cash on delivery.
Customers bought online but then had a voucher physically delivered to them and handed over the cash.
"That might sound strange to someone in another part of the developed world," says chief executive Paul Kenny, whose firm now has more than half the Middle East market share by revenue, according to data from research firm Kongregator.
"But until very recently, that's the way it was,"
For Original Fitness Co, which runs the beach boot camps, the trend has offered a new marketing technique.
Tighter economic times and more competition means the firm's regular prices are already about half the 900 dirhams ($245; £160) per month it could charge in the boom years.
And through a social buying site, it recently charged just 270 dirhams ($70; £45) for a month of sessions.
"We don't make much money from the deals at all, but the idea is to get people in and then we try to keep them," says managing director Corey Oliver.
"Marketing can be expensive, but this is quite a cost effective way of doing it.
"And once people try it, we hope they enjoy it and want to come back, even if it'll cost them a bit more."
Both Cobone and GoNabit have expanded from their UAE roots, with Egypt, Jordan and Lebanon seen as key markets.
And the Arab uprising, which has dominated the region this year, does not appear to have hampered expansion.
GoNabit delayed its Egypt launch after President Hosni Mubarak was ousted in February, but went online in March, with the encouragement of staff in Cairo.
"They convinced us that even when all anyone was talking about was revolution and change, that people still want to do the things that our offers have," Mr Stuart says.
"They still want to go to restaurants, to have a spa, to go paintballing. Life goes on."
All the region's key players have their sites in both English and Arabic, with Egypt now the region's biggest growth market for group buying - helped by the opening up of the internet, and the increasing popularity of social media.
But Cobone's Paul Kenny says each country needs a different approach - from the tone of language to the deals offered.
"From Jeddah to Riyadh to Cairo to Dubai they all have different complexities," he says.
"In Dubai there are still plenty of people with a lot of disposable income. We sell a lot of trips on luxury yachts, and recently sold four $28,000 cars in one day.
"Compare that with Cairo and it's food and spas - they're the things more commonly consumed ... [there's] less disposable income, so we make sure we tailor it to the local market."
While the group buying trend allows retailers to create demand for things which customers may otherwise not have wanted - and therefore offer growth opportunities - there are also potential pitfalls says Hermann Behrens, chief executive of The Brand Union Middle East.
He warns that a hangover from the boom years of pre-2008 means places such as Dubai and Abu Dhabi suffer an over-supply of things like restaurants and spas - and that the new retail trend might further drive firms only to compete on price.
"The biggest danger is that if you're generating trial for a brand and people are actually going to a restaurant or a spa or buying a product, and it doesn't fulfil a value that's higher than they have paid for it, that could dilute or denigrate the value of the brand," he says.
"That's especially true if it's not an established brand with an established value."
It is an issue which faces Go! Yacht Charters - a firm hiring luxury boats in the UAE.
While there remains demand for its VIP services - from footballers and presidents to visiting oil tycoons - the economic downturn and slow recovery has hurt business, especially corporate bookings.
Now the firm is using a group buying site to sell time on its vessels - from $30 short trips out to sea to a $3,700 (£2,400) package to this November's Formula One Grand Prix in Abu Dhabi.
It is one way to get some revenue from boats that may otherwise be standing idle, says managing partner Rob Appleyard.
But sitting on the plush purple seating on the 120ft yacht Sheleila, Mr Appleyard denies that allowing people onto multi-million-dollar boats for a few dollars a time cheapens his brand.
"It gets people on board to have a look and they're wowed by it. It's showing people that these boats are affordable, that they're not just for billionaires
"Hopefully, someone will buy one of these deals, they'll be impressed and they'll tell their boss - if they're not a boss themselves - and we'll get some corporate business off the back of it."